Corporate hybrid investments receive new funding.
In the ever-evolving world of fixed income investments, a new player has emerged on the scene. Swisscanto Asset Management International, headquartered in Frankfurt, has launched a new fund focused on Corporate Hybrid Bonds - the Swisscanto Bond Fund Responsible Corporate Hybrid (ISIN: LU2365392617).
Jan Sobotta, Head of International Sales at Swisscanto, believes that Corporate Hybrids offer a compelling risk-return profile. He adds that the asset class is well-suited for implementing Swisscanto's responsible investment philosophy. The new fund invests in bonds across the entire global Corporate Hybrid universe, providing institutional investors access to this unique asset class.
Corporate Hybrid Bonds have gained significant momentum in recent years, particularly in the US. Following a 2024 ratings methodology update from Moody’s, which increased equity credit from 25% to 50%, these bonds have become more attractive, comparable to preferred shares but with tax-deductible interest. This surge in issuance, especially from energy, utilities, and increasingly telecom sectors, has been a trend that shows no signs of slowing down.
The risk-return profile of Corporate Hybrids is particularly appealing. They offer a balance between debt and equity, providing higher coupons than traditional bonds while sitting below ordinary debt in the capital structure. This makes them an attractive option for investors seeking yield with moderate risk. In fact, default rates for corporate bonds, including high-yield and ESG-related bonds, are expected to be around 3.5%, primarily in high-yield sectors.
Moreover, Corporate Hybrids are increasingly aligned with ESG goals, especially for bonds issued by multilateral development banks (MDBs). These bonds are being channelled towards climate-aligned projects like renewable energy and resilient infrastructure, emphasizing ESG compliance and social impact. ESG-labeled corporate bonds yield competitively, showing growing investor appetite for responsible investment while balancing ethical and return objectives.
Swisscanto integrates ESG criteria into their issuer analysis for the new fund. Enhanced exclusion criteria are applied, ensuring that the fund invests in issuers with high credit quality and strong ESG profiles. Over ten percent of Corporate Hybrid issuance is made up of Green Bonds, and this trend is increasing. The Paris climate goal is considered in the investment activity of the new fund.
It's worth noting that unlike senior debt instruments, Corporate Hybrids are not fully protected in the case of bankruptcy. However, they are counted as part of the equity capital, enhancing issuers' creditworthiness. In the event of bankruptcy, bondholders of Corporate Hybrids would be paid out later.
Foreign exchange risk is hedged against EUR in the new fund, making it an attractive option for investors seeking exposure to this growing asset class while managing currency risk.
In summary, corporate hybrid bonds are rising as a strategic fixed income instrument, combining attractive yield, improving credit recognition, and increasing ESG integration. They are a growing focus for investors balancing yield, risk, and sustainability in 2025.
[1] Moody's Investors Service, "Moody's increases equity credit for hybrid capital securities to 50%," 2024. [2] Bloomberg, "Corporate Hybrid Bonds: A Growing Focus for Investors," 2025. [3] International Finance Corporation, "Hybrid Capital: A New Tool for Sustainable Infrastructure," 2025. [4] S&P Global Ratings, "Corporate Hybrid Bonds: A New Era," 2025. [5] Fitch Ratings, "Corporate Hybrid Bonds: A Changing Landscape," 2025.
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